So, it’s happening. The Banking Reform bill to be published today will give the Treasury and the bank regulator the power to break up a bank that doesn’t respect the ringfence between retail banking and the riskier stuff. Read more
The government will accept “in full” Sir John Vickers’ report proposing an overhaul of Britain’s banks, said Vince Cable, business secretary, the FT reports. The coalition will give its formal response to the report by Sir John’s Independent Commission on Banking on Monday, endorsing plans to split big banks and place separate retail operations behind a high capital wall. Mr Cable said he had reached a “common view” with George Osborne, chancellor, that the changes would be put into law before the planned 2015 election. Meanwhile, Nick Clegg, deputy prime minister, will today articulate “the anger that people feel at the bonuses still flowing to bankers”, promising to use the government’s controlling stake at RBS and Lloyds Banking Group to ensure restraint. Read more
Regulators should have powers to limit banks’ ability to pay bonuses and dividends if they run into severe financial difficulties, according to the chief executive of HSBC. The FT reports Stuart Gulliver told a panel of parliamentary members that it would be “absolutely reasonable” for the Bank of England’s new financial policy committee to control such payments in extreme circumstances, such as banks’ debt levels running too high or their capital and liquidity levels falling too low. Mr Gulliver was appearing in front of the committee that oversees the draft financial services bill alongside Bob Diamond, chief executive of Barclays, and Stephen Hester, head of Royal Bank of Scotland. Asked about the impact of the Vickers reforms on the banks, Mr Gulliver said plans to force lenders to hold more capital could trigger a net cost of up to $2.1bn (£1.3bn) a year for HSBC, which obtains most of its revenue overseas. Read more
Sir John Vickers is laughing all the way to the bank(ing commission). As a movie plot, the publication of his report, immediately followed by a spectacular demonstration of why we needed it, is much too far-fetched. It would have seemed preposterous for a bank to suddenly find itself short of $2bn, thanks to some bad bets at the casino.
“Delta One” sounds whizzy, but its underlying operation is as old as it is simple: promise some muppet investor a return linked to some fashionable index, and then bet his money on something else. The banks’ traders always think they can beat the market, and much of the time, they can’t. Even beating such pedestrian indices as the FTSE100, with its mechanical rules for quarterly constituent changes, is much harder than it looks. Just try it. Read more
Britain’s banks will face an annual bill of as much as £6bn ($9.5bn) to comply with the reforms of the Vickers Commission, the FT reports, citing people who have seen the panel’s final report, published on Monday. As foreshadowed, the central recommendation of the Independent Commission on Banking will be that banks’ core operations must be ringfenced from the rest of their businesses. The cost impact of the changes will mainly be the result of higher funding charges for the banks’ operations that are left outside the more highly capitalised ringfenced entity. But in a crucial concession to the wide spread of business models among the banks, the commission will not dictate where each institution must place the ringfence, instead allowing lenders and their customers a degree of choice. Read more
David Cameron has given the strongest signal yet that he will back recommendations to build a firewall around Britain’s retail banking operations, the FT says, but he wants to delay the implementation of the structural upheaval for a number of years. The prime minister’s allies say he is anxious about the impact of radical and costly reform on the banking sector at a time of flat growth and is opposed to anything that would undermine business lending and impede the recovery. But colleagues say Mr Cameron is prepared to back the changes – to be outlined on Monday in Sir John Vickers’ long-awaited report on banking reform – if the split between retail and riskier investment banking is phased in after the planned 2015 election. Read more
George Osborne and Vince Cable are set to clash over the Vickers’ report into banking reform, the FT says, as the chancellor and the business secretary debate the timetable for bringing into force the ringfencing of Britain’s retail banking operations. Advisers close to Mr Cable said the business secretary would not accept any delay in bank reform after it was revealed in the FT last week that Mr Osborne was considering a plan to endorse strict ringfencing while giving banks a long timeframe – probably until 2019 – to implement the rules. Meanwhile Mr Cable is pushing for the government to consider a tax on the wealth of the richest homeowners as a trade-off for repealing the 50p top rate of income tax, the FT says - a sign that Mr Osborne does not believe the 50p rate raises significant revenue and will repeal it later in this parliament. Read more
The ringfence to be put around Britain’s retail banking operations – the core recommendation of the government-appointed Vickers Commission – will be far stricter than many bankers had anticipated, according to people familiar with the report, the FT says. Next month’s final report by the Independent Commission on Banking, chaired by Sir John Vickers, will set the ringfence very high, the people said. That will bar groups’ investment banking operations from securing funding advantages from their sister retail banking operations in a move that could be particularly disruptive for the likes of Barclays and Royal Bank of Scotland.
An influential group of MPs has demanded a more robust debate over plans to force Britain’s banks to protect their core UK retail operations, so that radical changes were not agreed behind closed doors. Responding to proposals from a commission led by Sir John Vickers, the Treasury select committee called for greater detail on how its central idea of ringfencing customer loans and deposits would work in practice. “The full arguments for, and all the major criticisms of, ringfencing need to be on view,” Andrew Tyrie, who chairs the Treasury committee, told the FT. “It is the public who pays for banks’ and regulators’ mistakes.” Mr Tyrie expressed concern that the evidence on which the independent commission on banking’s recommendations had been based – and the banks’ criticisms of those proposals – had not been properly aired. Read more
George Osborne is to herald a revolution in British banking, the FT reports, endorsing plans to build a capital wall around the country’s high street branches to help protect them in the event of financial crisis. The chancellor will accept the central recommendation of Sir John Vickers’ Independent Commission on Banking that big diverse banks, such as HSBC, Royal Bank of Scotland and Barclays, should “ringfence” their essential operations – including deposit-taking and payment systems – and inject more capital into them. Sir John recommended a capital buffer equivalent to 10 per cent of risk-weighted assets around those retail banking operations. Although his final report is not due until September, Mr Osborne will use his Mansion House speech to warn banks to stop opposing the proposal and begin engaging on how the new system would work. Read more
What was that about devils and details? European banking groups could take advantage of a loophole to escape higher capital requirements recommended by the Vickers Commission report on UK bank restructuring, claims the FT. European Union “passporting” rules allow banks from across the EU to operate in each other’s markets as “branches” subject to regulations in their home-country, rather than full-blown subsidiaries that would have to play by UK rules. Michael Ellam, a top UK official, may be able to prevent the worst, however, in his new role as chair of the EU’s Financial Services Committee, says Reuters. Meanwhile, across the pond, the Vickers report is picking up support from FDIC chairman Sheila Bair, who told the FT she supports the idea of separating banks’ retail and investment divisions. Read more
City fund managers have broadly welcomed the reform drive sweeping Britain’s banking sector, in spite of vocal criticism from some institutions, the FT reports. “There is a largely silent majority of investors who believe that structural reform and tougher capital requirements are a good idea,” said James Alexander, head of equity research at M&G. On Monday an interim report by Sir John Vickers’ Independent Commission on Banking recommended ringfencing UK retail banking operations and making them hold more capital. “It’s a decent compromise between ensuring a safer UK banking system without putting the UK banks at an international disadvantage,” said Richard Black, UK equities fund manager at Legal and General Investment Management. Debate continues over how much capital is appropriate for UK institutions. Read more
The FT takes a mixed view of Monday’s recommendations from the UK’s government-appointed Independent Banking Commission. The bankers have been arguing that the time for remorse is over, while their opponents would like to see the industry ever more tightly shackled, it notes in an editorial comment, saying: The interim report of the IBC, established last year… will satisfy neither. The report is not a final statement, but an instalment. While it sets out a sensible path towards reform, it is… more in the form of an agenda for debate than a series of definitive answers. As such, it should be seen as setting out one possible destination. It neither locks the commission into a plan – nor prevents it from advocating greater radicalism. Read more
Lloyds Banking Group will face intense political pressure to sell more of its retail business, although the UK state-backed bank warned such a move would harm customers and shareholders, reports the FT. Lloyds was the only institution singled out for specific reforms in recommendations from the government-appointed Independent Commission on Banking. In its interim report, the commission, led by Sir John Vickers, proposed that banks ring-fence retail banking activities and increase core tier one capital to 10%. The proposals – to be finalised by September – came as a relief to the big diversified banks, Barclays, RBS and HSBC, which feared tougher measures. They also bring the UK’s regulations closer to the US, allaying fears that UK lenders will flee abroad. Although the proposals come in the ICB’s interim report, Lex says the “worst may already be over” for the UK’s big banks. Read more
Global banking regulation took a step towards convergence on Monday as a UK commission proposed measures that will bring the country’s financial rules closer to the US, reducing fears that British lenders will flee London for New York, reports the FT. The Independent Banking Commission, led by Sir John Vickers, stopped short of forcing banks to split their securities businesses from their retail and commercial lending operations – a radical plan that had been bitterly opposed by the industry. Read more
Britain’s banks will have to boost safeguards and and brace for more competition under proposals in a long-awaited report that could trigger a big shake-up of the sector, reports the FT. While allaying City fears over bank break-ups, the Independent Commission on Banking will on Monday propose potentially costly regulatory options, including ring-fencing “essential” services and forcing a broader high street branch sell-off. Sir John Vickers’ interim report is also expected to suggest ways to boost competition in retail banking, a highly concentrated market where Lloyds Banking Group provides almost one in three current accounts. The ICB will rule out a reversal of the Lloyds TSB and HBOS merger. But the panel will raise the option of Lloyds selling more branches than the 600 it is already divesting under state aid rules. The report is also expected to recommend a full competition inquiry into the banking retail market. Read more
George Osborne, the UK chancellor, believes that expected recommendations on restructuring UK retail and investment banking groups by the Independent Commission on Banking are “going in the right direction”, according to an aide, reports the FT. The commission, chaired by Sir John Vickers, is considering whether to split the big UK banks into separate retail and investment banking companies or force those operations to be capitalised separately. It seems to favour the latter option, fiercely opposed by banks. The Treasury’s comments in support of the commission came after Mervyn King, Bank of England governor, urged the government not to give into banks’ lobbying Douglas Flint, HSBC chairman, fuelled speculation about the bank’s possible relocation to Hong Kong by saying investors were concerned about “the additional cost of being headquartered in the UK”. Read more
Britain’s biggest banks have hit back at threats to break them up, claiming there is no evidence that an overhaul would make the financial system safer, reports the FT. In submissions to the government-appointed Independent Commission on Banking, published on Wednesday, they argued for keeping retail and investment banking operations under one roof. But they met equally firm calls from industry figures to split up Lloyds Banking Group and Royal Bank of Scotland. Sir George Mathewson, former head of RBS, said the commission should consider breaking up the part-nationalised bank by unwinding its takeover of NatWest – a deal he led in 2000. In a personal response to ICB chairman Sir John Vickers, he also urged reversing Lloyds’ purchase of HBOS. FT Alphaville meanwhile gives a flavour of the submissions. Read more
Which anarchist added this to the list of public responses sent to the UK’s Independent Banking Commission? (H/T to the FT’s Paul Davies):
While again emphasising that this is a personal view, I do believe that in the interests of competition, the merger of HBOS and Lloyds was misconceived and Lloyds Banking Group should be broken up. Under normal circumstances this would never have been allowed and nothing has happened since to make the decision any more correct… Read more
Sir John Vickers, head of the UK government-appointed Commission on Banking, will use a speech on Saturday to make clear that big banks are mistaken if they believe his commission will leave them intact, reports the FT. In a sign of his determination to tackle the “too big to fail” agenda, Sir John is expected to outline a range of ways in which the operations of the big “universal banks” – which combine high-street banking and riskier investment banking under one roof – could be overhauled and forced to ring fence, or “subsidiarise”, their component parts. Read more
Here’s some reading for the UK’s Independent Banking Commission, ahead of its first public appearance on Friday.
It’s an in-depth report from JP Morgan on the profitability of Lloyds Banking Group’s retail operations. Read more
Sir John Vickers, former head of the UK’s Office of Fair Trading and a consumer champion, has been appointed to lead a sweeping review that could decide the future of the UK’s biggest banks. George Osborne, chancellor, said Sir John’s independent banking commission would look at issues including the future “size, scale and function” of the banking sector, the FT reports. Read more
1Time to take basic income seriously?
2We cannae give the economy no more, we're giv'n it all we've got Captain
3The case for official e-money +1
4Hacking and property prices make the BoE big league
5"Companies should know who really owns them..."
Show more6Tax needn't be taxing. It can also be a Hungarian debt wheeze
7QE down under
8The end of the end of the end of the commodities supercycle is nigh, in Asia
9When liquidity meets control in China [updated with credit crunch probability]
10The central bank (communications) bubble
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